The Brutal Impact Of M M R

[rantnrave]

Getting a mortgage proves impossible for almost half of hopeful buyers

Almost half of those who had planned to buy a property since the introduction of the Governments new affordability rules last year have failed to do so.

Research this month by Experian finds the Mortgage Market Review (MMR) has had considerable impact, with 45% of prospective home buyers unable to raise mortgages.

In a separate report out today, by Reeds Rains and Your Move, 13.1% of tenants believe they will never own their own home. Just 11.2% believe they will be home owners by this time next year.

In the Experian research, one quarter claim that the MMR has impacted their ability to buy a property, while a further 37% report that the changes have made them feel less in control of securing a mortgage.

The research also shows that many mortgage applicants have neglected the basics.

Almost half (46%) have never checked their credit report, meaning they have no indication of how a lender might view their ability to repay money.

Other reasons for failing affordability checks are also clear in the research, with 13% not knowing how much money they have left at the end of the month, and 18% not knowing what mortgage payments they could afford.

Of the 1,500 respondents who either bought or had planned to buy a property in the last year, 62% did not know lenders may require bigger deposits, 23% thought they could now get mortgages with smaller deposits, and 37% did not know that lenders would scrutinise affordability.

Of those applicants who failed to get mortgages, 11% did not know why they had been rejected as they simply had not asked.

However, despite the downbeat tone of the report, mortgage lending by high street banks did go up in April.

Approvals by the banks rose by 7% on the month before and by 2.8% year-on-year.

The total number of approvals was 70,310, while approvals for house purchase accounted for 40,850 of these up 3% on April 2014.

The British Bankers Association said there had been a significant pre-election jump in approvals, although there was a possibility that the abolition of Stamp Duty in Scotland on April 1 may have been a factor.

According to agents Your Move and Reeds Rains, the number of first-time buyers was up 3% in April compared with March.

The Experian report, The Mortgage Muddle, is here http://www.experian.co.uk/assets/consumer/downloads/resources/Mortgage_Muddle_Report.pdf

Edited May 29, 2015 by rantnrave

[dpg50000]

37% did not know that lenders would scrutinise affordability

WTF? I despair of how thick some people are...... Did you just think they'd give it you on trust, no questions asked? This isn't 2007 you know!

[spyguy]

AS my mum said 'Im sure the bank wouldn't give money they know cannot be repaid'.

How does a bank *really* know whats going to happen, and any future plans? It can't. All a sensible bank (remember those?) is lower the risk for itself and the borrower by lending at lower multiples and with high deposits.

I know 2 pre-MMR mortgages.

One's family. The other lives round the the road from my mum.

The family one has blown up after ~4 years.

90% LTV, IRs at almost 7% - same as MMR, no connection. Loan ~180k.

Repayments are costing ~1300/month.

That is all the biggest earners take home, which was about 70% of the joint take-home.

Its been a struggle for them both.

Talk of being able to remortgage when they built some equity never happened; houses have been flat for 10 years.

The normal' your wages will rapidly increase' BS was just that - BS. Flat to falling income, increasing costs.

The other mortgage is for a similar amount but the income setup is even worse - both doing seasonal NMW jobs,

kid, tax credits. And they are getting married soon.

I know whats going to happen. I wish it would not.

MMR is a good thing.

[spyguy]

37% did not know that lenders would scrutinise affordability

WTF? I despair of how thick some people are...... Did you just think they'd give it you on trust, no questions asked? This isn't 2007 you know!

50% probably do not know what a percentage is.

[long time lurking]

Have suspected this for a while now ,the market around my way consists of BTL`ers and equity swapers

[rantnrave]

Credit reference agency advertising. Before anyone is fooled into signing up to any of their services it is worth pointing out that by law they have to send you a full credit reference file for £2.

What they want you to do is sign up to a monthly payment by offering the first month free. Don't do it.

Info here:

https://ico.org.uk/media/for-the-public/documents/1282/credit-explained-dp-guidance.pdf

That sounds like an excellent tip - link's not working though unfortunately

[long time lurking]

There is a great article in the DM where BTL generates a return of 11.9% on your investment of 42k. It's like HUTH on steroids where the renter pays the mortgage and you then make 11.9% on the equity you put in to buy the property. So you don't need to buy a house to live in, just buy a couple to rent out instead of working. This new world is magic.

From what i have been told what you are saying is common in Australia

[Ah-so]

Yes but you can just sign up for a month and then cancel. You do have to phone them to cancel though, you can't just do it online and they do try and persuade you to stay and pay their expensive monthly fee.

the coast of the phone call and effort will outweigh the benefit of saving £2

[Digsby]

50% probably do not know what a percentage is.

The other 25% can't add up.

[Squeeky]

the coast of the phone call and effort will outweigh the benefit of saving £2

You can do it online. With equifax I had to create a separate support account and raise a ticket ( https://equifaxuk.custhelp.com). I hate having to call up, so prefer spending some time digging around the site.

Edited May 29, 2015 by Squeeky

[Ash4781]

As up thread the company is clearly selling something - a solution to the problem.. if there us a problem

[interestrateripoff]

37% did not know that lenders would scrutinise affordability

WTF? I despair of how thick some people are...... Did you just think they'd give it you on trust, no questions asked? This isn't 2007 you know!

Not surprising, people have grown up with easy credit. Apply and get. Must come as a shock when you don't get it.

[zugzwang]

In a zero yield world lenders simply can't afford to let their customers victims remortgage. As soon as those teaser rates expire it's onto the SVR @ >5% they'll go, and on the SVR @ >5% they'll remain.

[spyguy]

In a zero yield world lenders simply can't afford to let their customers victims remortgage. As soon as those teaser rates expire it's onto the SVR @ >5% they'll go, and on the SVR @ >5% they'll remain.

Not sure.

With a ~50% deposit and a top 2% income, a FTB can get a First Direct mortgage for ~4% APR.

All 5 of them!

[winkie]

MMR is a good thing for obvious reasons, can't pay won't pay........all they need to do is make the unregulated mortgages align making it a level playing field via better protected rentals inc prices for tenants that are now unable to buy because IO and self certified mortgages no longer exist for OOs.

[Fairyland]

Probably an old article but I just happened to read - Cover story – MMR: One year, many changes

Mortgage prisoners(40%) caught my attention. Quote below -

Mortgage prisoners

The biggest problem created by the MMR has been mortgage prisoners. These are borrowers who took out a mortgage when affordability rules were more relaxed and are now unable to get a deal in the new environment.

The FCA has called on lenders to use the transitional arrangements – which allow lenders to waive certain elements of the new rules to avoid borrowers being trapped in their current deal – but lenders say they fear retrospective action.

In its MMR cost-benefit analysis, published alongside the new rules last April, the regulator estimated that 2.5 per cent of borrowers would be unable to obtain a mortgage due to its affordability rules.

The FCA used the Joseph Rowntree estimate of consumer spending in the bottom 10 per cent of earners. However, most lenders use the average consumer spending figures from the Office for National Statistics when making affordability calculations, which are “significantly higher”.

Boulger says: “When the FCA calculated 2.5 per cent of borrowers would not qualify for a mortgage after the MMR, the figure was fatally flawed. The FCA was making a completely different assumption about how lenders calculate expenditure. That is a key reason why there are more mortgage prisoners than is generally recognised.”

John Charcol estimates that up to 40 per cent of mortgage borrowers are prisoners based on standard lender calculations rather than the FCA figures.

“There are various reasons such as affordability, borrowers with self-cert mortgages or adverse credit,” says Boulger. “Affordability is certainly a bigger factor than the FCA has estimated.”

From mortgage prisoners to the surge in broker deals, the MMR has rocked the mortgage market in a number of unexpected ways, both positive and negative, in its first 12 months, although its long-term effects remain to be seen.

[Fairyland]

WOuld be interesting to find out how many of them are OOs vs BTLs.

[Si1]

Oooh and a black swan comes along and sh#ts from on high. Suddenly mental leverage has a downside.

[long time lurking]

WOuld be interesting to find out how many of them are OOs vs BTLs.

MMR dose not apply to BTL

[long time lurking]

Oooh and a black swan comes along and sh#ts from on high. Suddenly mental leverage has a downside.

Yes it dose but the effect is also preventing prices falling around my way IMO as the middle ground is full of zombies unable to even move sideways

A market with transaction volumes @ all time lows with nothing much it the way of forced sellers is a market in limbo land, due to the low volumes prices are stagnant

I am seeing the IO BTL brigade attempting to offload which is providing a lower price ceiling in that /those parts of the market which is slightly encouraging

[Milkshock]

Yes it dose but the effect is also preventing prices falling around my way IMO as the middle ground is full of zombies unable to even move sideways

A market with transaction volumes @ all time lows with nothing much it the way of forced sellers is a market in limbo land, due to the low volumes prices are stagnant

I am seeing the IO BTL brigade attempting to offload which is providing a lower price ceiling in that /those parts of the market which is slightly encouraging

agreed its greedy OO's that are causing the blockage - not BTL.

[spyguy]

Yes it dose but the effect is also preventing prices falling around my way IMO as the middle ground is full of zombies unable to even move sideways

A market with transaction volumes @ all time lows with nothing much it the way of forced sellers is a market in limbo land, due to the low volumes prices are stagnant

I am seeing the IO BTL brigade attempting to offload which is providing a lower price ceiling in that /those parts of the market which is slightly encouraging

Yes + No.

Housing transaction are still driven by the 3 Ds - debt, divorce, death.

None of these have slowed down over the last 8 years, in fact, all have them step up a notch during times of financial stress.

Each house that is not sold goes into some sort of holding position - empty til it sells, let out til the market improves, lets stay together until we can get some equity. The financial stress does not disappear its just banked for later.

The 'banking for later' has been going on for 8 years. I would guess there's probably a good 10 years of unsold housing stock waiting.

The then debt situation turns and all those houses are forced to exist through a small number of transaction window, so, rather than competing with unsold houses for a year or so, there's 5+ years all trying to exit.

[Milkshock]

Yes + No.

Housing transaction are still driven by the 3 Ds - debt, divorce, death.

None of these have slowed down over the last 8 years, in fact, all have them step up a notch during times of financial stress.

Each house that is not sold goes into some sort of holding position - empty til it sells, let out til the market improves, lets stay together until we can get some equity. The financial stress does not disappear its just banked for later.

The 'banking for later' has been going on for 8 years. I would guess there's probably a good 10 years of unsold housing stock waiting.

The then debt situation turns and all those houses are forced to exist through a small number of transaction window, so, rather than competing with unsold houses for a year or so, there's 5+ years all trying to exit.

Each house that does not sell also causes problems for potential purchasers for whom the issue of shortage of supply comes more sharply into focus as a result as they have to hold off buying - back to parents or continue/begin renting as a result for example.

[happyrichie]

There will need to be another HtB scheme where the taxpayer helps these people out so they can move. In the current situation if people want to downsize and reduce their debt their mortgage payments could actually increase so Dave and George will need to introduce HelpToMove to supplement HtB 1 and 2 and NewBuy and the HtB ISA ... not forgetting HtB 6 and 7 to help the people who have taken out HtB 1 and 2.

if i use the h2b isa and h2b 2 am i still entitled to h2m? can i get £23k per year on the doll and use that income for pention plan?

[olde guto]

Yes it dose but the effect is also preventing prices falling around my way IMO as the middle ground is full of zombies unable to even move sideways

A market with transaction volumes @ all time lows with nothing much it the way of forced sellers is a market in limbo land, due to the low volumes prices are stagnant

I am seeing the IO BTL brigade attempting to offload which is providing a lower price ceiling in that /those parts of the market which is slightly encouraging

I'm inclined to agree, however the bottom end of the market (starter homes as opposed to ex-council) near me seems to have gone up in price disproportionally and I suspect that the sellers need to sell for to get together a big enough deposit to "move up the ladder". But the sales of these starter homes keep falling through (my guess OO buyers as opposed to BTL) as obviously FTBs are struggling to get mortgages.

MMR seems to have caused an almighty stalemate.